Cairn wants Gujarat High Court to define â€کmineral oil'

Vol 12, PW 22 (09 Apr 09) People & Policy

Cairn India has filed a writ petition against the Government of India in the Gujarat High Court - in a move that will have far-reaching implications on future investment in the country’s exploration and production sector.

PETROWATCH learns that next week (Wednesday, April 15) Justices DA Mehta and SR Brahmbhatt of the Gujarat High Court in Ahmedabad are scheduled to deliver a ruling on Special Civil Application (SCA) No.1436, originally filed by Cairn on December 4 last year.

“Cairn has a single-point agenda,â€‌ says our correspondent, “and that is, it wants the court to define whether the term â€کmineral oil’ includes natural gas.â€‌ Cairn’s writ petition comes in response to a statement on February 29 last year by Palaniappan Chidambaram (then finance minister) that caused near panic in E&P circles when he proposed amending Section 80-IB (9) of the Income Tax Act, 1961, during the Finance Bill, 2008.

Chidambaram’s aim was simple: to strip oil companies of a promised seven-year tax holiday on gas production after April 1, 1997. His logic, disputed by geologists, and contradicted by existing oil and gas legislation, is that the term â€کmineral oil’ does not include natural gas.

Uproar followed, and on April 29, a defensive Chidambaram passed the buck to the courts, ensuring a steady revenue stream to fellow lawyers for months ahead! “I may assure potential (NELP-VII) bidders,â€‌ Chidambaram told parliament, “that the benefit of Section 80-IB (9) as finally interpreted by the courts will be applicable to all exploration contracts.â€‌ Cairn, like Niko Resources and GSPC, will be the third company to take Chidambaram at his word.

Last month GSPC won a similar case at the Income Tax Appellate Tribunal, which could save it Rs570cr ($114m); and in February last year Niko won a case at the same Tribunal over Hazira gas production. “If Cairn wins this case,â€‌ predicts an Ahmedabad lawyer, “mass litigation by other companies will follow.

â€‌ Cairn’s writ petition is directed against the Union of India, the Director of Income Tax (International Taxation) and Assistant Director of Income Tax (International Taxation). Scheduled for April 15, the hearing has been postponed seven times before so by no means expect it to take place for sure on this date, but it will take place – eventually.